5 Tips for Budgeting During a Nonprofit Leadership Transition

Leadership transitions are inevitable, and vacancies can take time to fill, often placing added pressure on a nonprofit organization’s budget. A recent survey from the National Council of Nonprofits revealed that nearly 75% of nonprofits reported job vacancies, with the top challenges in recruiting and retaining employees being: salary competition (72.2%), budget constraints and insufficient funds (66.3%), and stress and burnout (50.2%).

While you can alleviate some of the stress of a leadership transition with proper succession planning, you must also pay special attention to your financial management practices during this time. You need to ensure you have sufficient resources so you can fulfill financial obligations and continue executing your financial management strategy. The following budgeting tips can help your organization weather nonprofit leadership transitions and possibly emerge even stronger.

1. Stabilize core operations.

The more stability you can bring to your organization during a leadership transition, the better. Here’s how you can reduce the negative impact of the change on your team and set a strong foundation for new leaders:

• Prioritize expenses. Nonprofit leadership transitions can lead to unexpected costs. During this time, ensure you have enough funds to allocate to fixed and essential expenses, such as staff salaries, rent, utilities, insurance, and program-critical costs. Then, prioritize the rest of your expenses so you know what to cut if necessary.
• Avoid major new commitments. New leaders will have their own strategic priorities. Encourage them to apply their fresh perspectives to your organization’s approach by preventing your team from committing to new projects or initiatives during the transition. Consider holding off on initiating commitments such as:
  • Programmatic changes (launching a new program or service)
  • Staffing adjustments (hiring a large number of new employees)
  • Operational changes (overhauling your nonprofit’s tech stack)
  • Financial obligations (entering into long-term vendor contracts)
• Build a short-term budget. If the leadership transition timeline is uncertain, don’t develop an annual budget without your new leader’s oversight. Instead, create a three- to six-month budget that will guide your team during the transition period, while still leaving room for the new leader’s priorities. Many fund accounting systems, such as Blackbaud Financial Edge NXT®, feature tools that allow you to create several budget scenarios that could help the new leader plan for different possibilities.  

While some might say that stabilization can halt growth, the act of switching leadership itself is an investment in your organization’s expansion. By stabilizing your nonprofit now, you’ll make it easier for new leaders to get started and help your organization grow in the future.

2. Consider transition costs.

Leadership transitions naturally introduce new costs. If you’re aware of these expenses and budget for them appropriately, you’ll be more prepared to weather the adjustment period. Common transition costs may include:

• Interim leadership compensation. Let’s say you’re hiring for a new Chief Financial Officer (CFO). In the meantime, you may hire a fractional CFO to lend their financial expertise while you look to fill the position. Although hiring a fractional CFO will typically be more cost-effective than hiring a full-time team member, you’ll need to set aside enough funds to compensate them.
• Search fees. To ensure they select the right mission-aligned candidates for the job, many organizations turn to executive search firms for help. It’s likely you’ll also incur other recruitment-related costs like advertising and candidate travel.
• Onboarding costs. Reserve funds for executive coaching, relocation, and the new leader’s technology and workspace setup. You may also consider hiring a nonprofit consultant to help ease the transition and integrate your next successor seamlessly into your organization.
• New leadership compensation reserve. Do your market research, then set aside enough funds for a competitive salary to attract top talent. Don’t forget to budget for benefits and any anticipated bonus or incentive pay.
• Severance and payouts. If you’re paying outgoing leaders severance and accrued employee benefit distributions, you may have a period where you’re compensating both former and current leaders at once.

Transition periods can be stressful. In addition to the costs outlined above, consider setting aside funds for staff morale and retention initiatives to reduce the risk of staff turnover and make team members feel more at ease.

3. Review funding agreements.

While leadership transitions can consume a significant amount of your team’s time, you can’t let commitments you’ve made to funders fall by the wayside. If you miss deadlines and reporting requirements, you can put your organization at risk of non-compliance and loss of funders’ trust.

To set new leaders up for success, double-check all grant restrictions, reporting deadlines, close-outs, and renewals. Ensure your interim budget aligns with these requirements, keep up with key deadlines throughout the transition, and prepare your team to develop an appropriate annual budget once new leadership arrives.

4. Prioritize flexibility.

The key to a successful transition period is preparing your team for any situation and remaining flexible. If (or, more likely, when) unexpected costs arise, you’ll have a solid plan in place to navigate these challenges and keep your nonprofit financially viable.

Build flexibility into your budget during this time by doing the following:

• Use conservative revenue projections. Donors and funders may be hesitant to give to your nonprofit during a significant leadership change, resulting in lower revenue for your organization. Keep revenue estimates low. Seek out alternative income sources to stabilize your organization.
• Leverage scenario planning. As YPTC’s nonprofit budgeting guide explains, “Scenario planning involves creating different versions of your budget based on your nonprofit’s best-case, worst-case, and most likely financial situations. These budget variations allow you to remain realistic and pivot quickly if necessary.” 
• Take advantage of system automation. For data accuracy, clear audit trails, and improved transparency across the organization, connect your fundraising and fund accounting systems.
• Create a contingency fund. Set aside a small portion of your budget to use if expenses are higher than expected or revenue is lower than expected. Define exactly what you can use these funds for. For example, you may create a contingency fund or allocate some of your operating reserves to ensure you have enough money for program expenses, even if your executive search takes longer—and is thus more expensive—than you originally anticipated.

With all the uncertainty nonprofits currently face, making your budget flexible will help your nonprofit remain stable even after you complete your leadership transition.

5. Strengthen board oversight.

The board’s typical role in the budgeting process involves reviewing your budget to ensure it aligns with your strategic priorities and approving it. However, during your leadership transition, your board should take a more active role in supporting financial management to minimize uncertainty and ensure everything runs smoothly. Strengthened board oversight may involve:

• Reviewing financial statements, budget-to-actual reports, and cash flow forecasts more frequently
• Requiring dual signatures for large payments
• Focusing board meetings more heavily on finances

Having your board step up during this time can further stabilize your organization’s finances. Plus, board members will be better equipped to communicate about your nonprofit’s current financial standing once new leadership arrives.

Throughout the leadership transition process, keep donors, funders, and other external stakeholders informed. While transition periods can make supporters feel wary of your organization, proactively communicating upcoming changes and your plan for navigating them increases transparency and maintains trust in your nonprofit.